Wall Street on pins, needles for Yellen speech
Fed chief could hint at near-term plan for interest rates
The speech is being billed by Wall Street as must-see TV, but Federal Reserve Chair Janet Yellen’s address Friday may not offer many — or any— surprises.
Yellen is unlikely to shock markets by signaling that an interest rate hike is coming next month when she speaks Friday at a highprofile symposium. She is, however, expected to start preparing the market and complacent investors for an eventual rise in borrowing costs. Yellen’s speech at 10 a.m. ET Friday in Jackson Hole, Wyo., is the big event Wall Street has been waiting for.
Yellen is expected to outline what “tools the Fed has to fight the next battle, the next crisis,” as it comes to grips with the new world of slow growth and low rates, says Gene Tannuzzo, senior fixed income portfolio manager at Columbia Threadneedle Investments.
Market pros likely will focus on comments from Yellen that shed light on the Fed’s near-term plan for interest rates. The Fed has left rates steady all year after boosting them off zero in December for the first time in nearly a decade.
But in recent weeks a few members of the Fed, citing a strong labor market and other upbeat economic signals, have come out in favor of a rate hike sooner rather than later, perhaps as early as the Sept. 20-21 meeting. The problem is Wall Street doesn’t expect a rate hike until December at the earliest, putting their portfolios at risk if Yellen shocks the market and signals the Fed’s getting ready to move.
A change in messaging from Yellen is not expected, given the Fed won’t get another look at the labor market — which rebounded strongly in June and July — until the August jobs report is released in early September. Inflation also remains tame, giving the Fed another excuse to wait.
“Yellen is not the type of person who uses this type of speech to make large policy announcements,” says Jamie Cox, managing partner at Harris Financial Group.
What Yellen is more likely to do, however, is “gently lead us toward a coming hike,” perhaps in December, says Luke Bartholomew, investment manager at Ab- erdeen Asset Management.
Yellen wants to avoid market turbulence, so a surprise policy shift toward a sooner-than-expected rate hike is unlikely.
“They want to avoid the shock factor,” says Tim Hopper, chief economist at TIAA Global Asset Management. But, at the same time, they need to change the market’s view that they are never going to pull the trigger, he adds.
Still, a negative market-moving event would be if Yellen “alludes to a rate increase in September or December in a definitive way,” backing the talk of Fed members who are viewed as “hawkish,” or rate-hike friendly, says Krishna Memani, chief investment officer at Oppenheimer Funds. “The market is not set up for a September rate hike,” he says.